World tissue consumption in 2017. Steady global growth continues

Global tissue consumption reached 37.7 million tonnes in 2017, up by almost 1.4 million tonnes from 2016, the highest volume growth second to 2015 which was only slightly more than in 2017. This corresponds to a relative growth of 3.8%, nearly the same growth percentage as in 2016 but slightly lower than the peak of 4.2% reached in 2015, which was exceptionally high, mainly thanks to strong growth in China.

author: Esko Uutela, Principal - Fastmarkets RISI

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Fastmarkets RISI

The importance of emerging markets continues to grow, and as their markets tend to grow faster than those of developed economies, the global average growth rates are positively influenced by this change in relative regional weights. Consequently, the past three years show a substantially larger volume growth than the years before. China continues to be the main driving force for global tissue market expansion. It has repeatedly accounted for more than 40% of the volume growth in tissue consumption worldwide in recent years, and in 2017 its share was 45%. China’s volume growth accelerated in 2017 to as much as 629,000 tonnes, a respectable achievement. North America and Latin America accounted for the second- and third-largest volume increases, followed by Asia Far East, Eastern Europe and Western Europe. In Japan, tissue consumption was stable in 2017.

It should be noted that 56-57% of the global tissue market expansion took place in Asia (including the Near and Middle East) in both 2016 and 2017.

North American growth extremely strong in 2016, some slowing in 2017

Tissue consumption grew in North America by an average rate of 3.2% in 2016, mainly thanks to the very strong US AfH business activity and increased net imports, which contributed about 1.4 percentage points to the growth rate. In 2017, domestic shipments continued at very much the same level as in 2016, but net imports grew much less and did not add more than about 0.2 percentage point to consumption, so market growth remained at slightly below 2.0% (1.95%).

Population growth is one driver for the North American demand, and in normal years it accounts for 35-40% of the organic market growth. One reason for the enhanced growth in North America is likely the fact that the main phase of product light-weighting and sheet size reductions seems to be over now, and shifts between quality categories, although continuing, have less influence on product and market structures than they did three to four years ago. The strong growth in the AfH sector is a major contributor as well; AfH toweling products are traditionally some of the heaviest tissue products.

In Europe, growth concentrated in the East and the South

The Western European tissue market has recorded rather disappointing growth rates in recent years, with just a few exceptions (2.7% in 2015). In 2017, the average growth rate was 1.3%, up from a poor 0.8% in 2016. High per capita tissue consumption, particularly in the Nordic countries, is an indication of maturation of growth, which along with limited product innovations (the high private label share in most countries does not support innovativeness) and low or no population growth (Central Europe) are major hindrances for tissue market growth. In addition, the Great Recession hit Southern Europe particularly hard, which has only gradually recovered from its economic misery.

In 2017, Southern Europe accounted for 79% of the Western European volume growth, with Italy showing the most positive performance after several years’ of stagnant tissue consumption. In the two largest European tissue markets, Germany booked a small contraction in its tissue consumption in 2017 and in the UK the market grew only marginally.

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In Eastern Europe, there has been no final solution to the crisis between Russia and Ukraine, but the tissue markets continued to recover in both countries. The overcapacity that emerged in Russia because of a 30% increase in capacity thanks to several projects a few years ago has gradually been absorbed by domestic market growth and increased exports, and additional new investments are already in the pipeline in Russia.

In Central Eastern Europe, the tissue business continued to develop positively, particularly in the Czech Republic and Hungary. New expansion projects are under construction or announced, showing that companies believe in continuing market growth and the possibility of displacing some imports in both countries. Poland, the second-largest Eastern European market, has developed very positively in recent years and per capita consumption has rapidly reduced the gap with the average EU level. New investments have helped this development, and Poland is today also a major tissue exporter to its neighboring countries.

Brazilian Recovery Helping Latin American Growth

Traditionally, Latin American tissue consumption has shown major variation in its growth from year to year. Economic instability often affects some of the main countries in the region, and Brazil suffered through a major recession beginning in 2014, which resulted in tissue consumption contracting in 2015, although it recovered somewhat to the 2014 level in 2016. After low growth of only 1.5% in 2016, Latin American tissue consumption recorded average growth of 4.1% in 2017, supported by sound, albeit not spectacular, growth rates of 3.4% and 3.5% in the two largest markets, Brazil and Mexico, respectively. Argentina, the third-largest market, recorded a surprisingly high growth rate of 6.7% in 2017, despite the fact that the economy continues to struggle and suffers from high inflation. Among the other larger players, Chile and Colombia experienced only moderate growth, while Peru (now #6) is in a good growth phase, supported by new capacity recently started up by CMPC. The situation in Venezuela is catastrophic. Tissue products, like many other consumer goods, continue to be in short supply, hyperinflation makes the controlled official market non-interesting and the black market is flourishing.

There are no production statistics available, but we estimate that tissue consumption continued to contract in Venezuela in 2017. In contrast, some smaller countries in Central and South America performed rather nicely in 2017.

Near and Middle East: former growth drivers Turkey and Saudi Arabia experiencing difficulties

Tissue consumption in the Near and Middle East rose by only 3.4% in 2017, after growing by 5.4% in 2016. In a historical comparison, these growth rates are clearly below the long-term average of 7.6% per year over the past 10 years (2007-2017). In the previous issue of this publication (World Tissue Business Monitor Q2 2018), we discussed the regional problems in more detail. To summarize, in Saudi Arabia low oil prices resulted in a poor economic situation and worsened purchasing power, while in Turkey the economy was doing well but tissue price increases due to escalating market pulp prices resulted in a doubling or even tripling of retail prices, which was difficult for consumers to accept, and tissue purchases were negatively affected.

In Turkey, tissue consumption remained stable but in Saudi Arabia, it contracted slightly in 2017, according to our current information. However, apart from the two largest markets, many other countries in the region performed better. In Iran, the new domestic capacity has had an effect, and although no very reliable production figures are available, we estimate that the domestic market continued to grow steadily. Foreign trade figures show that both imports and exports had much less importance, so the country was more or less self-sufficient in 2017. New domestic capacity helped the market to grow, but the new sanctions by the USA and its alliance members are likely to make problems for raw material supply from late 2018 onward. Most of the smaller countries in the region enjoyed positive growth, which contributed to the average growth, even in the war-plagued countries of Iraq and Syria.

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China’s tissue consumption not reacting to slower economy

China’s slowing economic growth seems to have had limited, if any, influence on tissue market growth. In recent years, actual consumption has repeatedly exceeded our expectations and growth in tissue consumption has also been higher than economic growth; in the past, GDP growth continuously exceeded tissue market growth. This change is likely a reflection of the ongoing structural change in China’s economy with an increasing focus on domestic consumption rather than exports and investments. In 2018, Chinese tissue consumption grew by 8.1%, up from 7.0% in 2016 but lower than the extremely high growth of 10.5% achieved in 2015. New regional markets in inland China continue to develop and record higher growth rates than the more developed coastal provinces.

On the supply side, the primary issue in China is the major restructuring process in the domestic tissue industry: new modern capacity is replacing old mills equipped with smaller machines and poor energy efficiency. According to the data collected by the China National Household Paper Industry Association (CNHPIA), about 2.2 million annual tonnes of new, modern tissue capacity came on stream in 2017, while 1.3 million tonnes of old capacity was closed. Nevertheless, the net capacity change exceeded the organic growth in the domestic market by more than 40% and total shipments, including net exports which continued to grow in 2017, by more than 30%. This means that the prevailing overcapacity situation in the country worsened further. Japan suffers from a declining and ageing population, which is bad news for tissue consumption. The Japanese tissue market has grown very slowly in recent years, and not at all in 2017. Domestic consumption is approaching the benchmark of 2.0 million tonnes but has not quite reached it. Japan has developed into a major tissue importer; in 2017, imports were 212,000 tonnes or more than 10% of domestic consumption.

Most of Japan’s tissue imports originate from China, followed by Indonesia, the USA and Vietnam.
Tissue consumption grew by 4.5% in the Asia Far East region in 2017, down from 5.7% in 2016. The largest market, South Korea, recorded growth of 2.7%, which is in line with its long-term growth trend, followed by Indonesia with 6.1% and Taiwan with 2.2%. Indonesia has benefitted from major recent investments in new capacity and the push of tissue products by main suppliers to additional clients. Sinar Mas (APP), with its tissue mills using integrated hardwood pulp, has led this development, but some other companies, such as the Sopanusa group, have also been on an aggressive expansion course, largely based on export demand. Indonesia is now the third-largest net exporter of tissue worldwide, with net exports of about 600,000 tonnes in 2017; only China and Italy continue to be larger net exporters than Indonesia.

Most other countries in the region also saw positive developments in tissue consumption. The only exceptions were Singapore, whose market contracted after strong growth in 2015 and 2016 (stock changes may have played a major role here), Hong Kong and Sri Lanka, which had no growth in their markets. Tissue consumption grew in the most populous Asian countries, India, Pakistan and Bangladesh, but their per capita consumption levels are still very low. The Philippines, Thailand and Vietnam, which are also interesting countries due to their size, also saw good progress in 2017 in tissue consumption, as did Malaysia.

Africa and Oceania showing some encouraging developments

African tissue consumption grew by as much as 8.2% in 2017, according to our current information, up from 4.4% growth in 2016. However, foreign trade statistics for some smaller countries are not yet available, so revisions are still possible. In any event, it can be concluded that 2017 was a good year for African tissue consumption. The most positive result is that tissue consumption has begun to develop in many countries which earlier were practically non-consumers of tissue. For example, Ethiopia with its more than 100 million people, saw a tissue mill built as part of China’s “One Road, One Belt” initiative, and another tissue mill is in the planning phase. In Kenya, the Chandaria Group has started the construction of a new tissue mill in Tatu City Industrial Park close to Nairobi, which when ready will reduce its parent roll purchases from abroad. However, this project seems to be developing quite slowly and very limited information is available about the phase of the construction after the official kick-off in October 2016.

In Tunisia, Azur Paper is expected to start up its second tissue PM rather soon. And the Turkish Hayat Group has announced a major investment project in Nigeria, which started with absorbent hygiene product manufacture (Molfic baby diapers) but tissue product converting has also begun, and tissue base manufacturing is expected to follow at a later stage. In Oceania, tissue consumption continues to grow, and in 2017 growth was 4.1%. Tissue consumption picked up in the small Pacific Islands in 2017, particularly imports in Papua New Guinea and Fiji. There is no new information concerning the construction of new tissue PMs by ABC Tissue, which has four new tissue PMs from China, three second-hand machines and one new which has been in creates for several years. Local contacts say that the PMs seem to be stored at the company’s mill sites, but no construction activity has been noted. Foreign trade statistics show that tissue parent roll imports, mainly from China and Indonesia, have continued as usual, and ABC Tissue has been the largest importer for its converting operations, which are much bigger than its own base paper production.